Time Value of Money Equations

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Concept #1: Time Value of Money and Using Timelines

Concept #2: Time Value of Money Equation: Future Value

Practice: The formula FV = PV * (1 + r)n is best used for:

Practice: You invest $4,545 in Clutch Bank today earning a juicy 10% annual interest. What is the value of your investment in one year? What is the value of the investment after two years?

Practice: The formula PV = FV (1 + r)n is best used for:

Practice: You are saving up $12,000 for a luxurious European vacation two years from now. How much money would you need to invest today at Clutch Bank, earning their juicy 10% annual interest, to have enough for your vacation? How much would you need to invest today, if instead you could only earn 6% interest?

Example #1: Time Value of Money

Practice: Today, you purchased a $1,000 bond that matures in 5 years. The bond pays annual interest of 10%. Visualize these cash flows on a timeline.